New Back to Work Lending Program Sparks Interest

Recovering families seek new mortgages through the “Back to Work” loan

The Federal Housing Administration (FHA) launched its “Back to Work - Extenuating Circumstances” program last August, creating shorter waiting periods and a second chance for victims of the 2008 housing market crash.

According to foreclosure-listing company Realty Trac, from January 2007 to December 2011, there were over 4 million completed foreclosures and 8.2 million foreclosures in process.

Lending agencies told families there was a three-year waiting period after foreclosure, short sale and deed-in-lieu. For victims of bankruptcy, there was a two-year waiting period.

The new Back to Work lending program waives years of waiting, allowing recovering families to apply for a new mortgage only 12 months after losing a home and only putting down 3.5 percent. There are neither premiums nor additional fees at closing. The program’s mortgage rates are the same as other FHA rates.

Mortgagee Letter 2013-26 states, “FHA is continuing its commitment to fully evaluate borrowers who have experienced periods of financial difficulty due to extenuating circumstances.”

To be eligible, families must have experienced an economic event that results in loss of employment or loss of household income by 20 percent or more for a period of at least six months. Lending agencies must be able to verify a loss of employment by receiving written verification that shows evidence of a termination date or where the prior employer is no longer in business.
 
Eligible borrowers will be required to participate in at least one hour of one-on-one housing counseling with a Housing and Urban Development approved agency.

The FHA said housing counseling enables borrowers to better understand loan options and obligations, assists in the creation of a budget, helps become better prepared for future financial shocks and teaches how to avoid scams.
 
“Housing counseling is an important resource for both first-time home buyers and repeat home owners,” Mortgagee Letter 2013-26 states.

Counseling is required to address the cause of a family’s economic event and must be completed within a minimum of 30 days, but no more than six months prior to submitting a new loan application. It may be completed online, by phone or in person. Participating agencies can be found at www.hud.gov.

Satisfactory credit is also required to be eligible for a Back to Work loan. Credit scores below 500 are not allowed in the program. The borrower’s 12-month credit history must be clear of late housing, installment debt payments, derogatory credit issues and delinquency. Borrowers with no credit score remain eligible.

Those facing Chapter 13 bankruptcy who have yet to be discharged prior to the date on their loan application must obtain written permission from the Bankruptcy Court before beginning a new mortgage.

The program is available through lending agencies in all 50 states and runs through Sept. 20, 2016.

Amanda Parkar has  an experience in writing on financial lending. She has been writing on various topics such as, New home buyer loans and back to work program.

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